J.D DURKIN: A very good Monday morning members one and all. As always, Chris Versace and I are now back to get ready for a busy week ahead. Underscore the word busy but we will start with a bit of a rewind.
Chris, good morning. Thank you for being here. Let's start our conversation off with Ford. You downgraded that name to a 4 signaling a bit of an exit ahead. You broke it all down in a recent alert for members last week. But give me your top reasons and do you have any update on your timetable considering that we'll get earnings from that name later on this week.
CHRIS VERSACE: Those are great questions J.D. We've been increasingly souring on Ford's profit prospects not only for the June quarter, but really, for the back half of the year. A variety of things have kind of unfolded with the company. But the catalyst that really sprung us into action, if you will last week for both trimming the position back as well as issuing that downgrade to a 4 rating was quarterly results from Tesla.
Tesla's been leading the charge with price cuts. And we saw what it did to its margins but there was also the comment from CEO Elon Musk that he will continue to cut prices irrespective of what it does to their margins. And that to us says that they're so focused on market share that it's going to have a disruptive effect across the board. So that's kind of a radical change to what we've seen.
And we're not really sure how Ford, GM, and others are going to react. But odds are, it's going to make for more difficult times ahead, especially, on volumes and margins. So that was really the catalyst that led us spring into action. In terms of what we're watching, well, you're correct. Ford will report later this week. But before that, competitor General Motors will issue its quarterly results.
And we're going to want to see what the volumes the margins have to say. And if it says that we're likely to see a somewhat sketchy-concerning report out of Ford. We very well could use the news to close out the portfolio's position in Ford.
J.D DURKIN: All right, fair enough. Chris, let me also ask you about McDonald's. A name that you've added to the bullpen. How is the state of the consumer playing into your overall thinking and what would you look for before actually upgrading a name like McDonald's firmly into the portfolio itself?
CHRIS VERSACE: So with McDonald's, we're trying always to position the portfolio for what's coming. And look, we know that consumers have continued to spend but we a few other things as well that consumer debt levels have simply ballooned past $1 trillion in credit card debt. We rates are going higher. We also know that a portion of the consumer is going to be saddled with the resumption of student-debt payments. That's going to task their ability to spend.
So we know folks want to continue to eat out. We want to identify a company that can really prosper from that. But at the same time, we've got the dollar falling so we want one that has some meaningful international exposure. And McDonald's checks both of those boxes.
In terms of what's it going to take for us to pull Mickey D's up to the active portfolio. Well, it could be one of two things. The first could be a pullback to around the $185 level. But the second one would be indications that the second half of the year is even stronger than what the market is looking for.
We touched on what that means in our note that called McDonald's up into the bullpen. But in terms of catalysts this week, Lamb Weston, the big French fry company that counts Mickey D's as its number one customer is going to report in the next day or so. Its guidance could be a factor that leads us to perhaps dip our toe into the golden arches.
J.D DURKIN: All right, time now for one of my favorite questions on Monday. If we had the ability to go back in time. And if you could redo anything from the last week, Chris, what would you hit the redo button on I wonder?
CHRIS VERSACE: That's an easy one for me. If we look back, we had put Morgan Stanley's shares into the bullpen. The catalyst we were waiting for is the rebound in investment banking activity. But the core asset management business really delivered for the company when it reported its quarterly results on Tuesday and the stock popped.
I really wish that we had a piece of that in the portfolio as a result of that earnings report. But I do think, J.D, with the continued almost stagnant nature of investment banking activity, we will see Morgan Stanley's shares drift back a little bit. And that'll give us the opportunity to finally call them up to the bullpen.
J.D DURKIN: All right, that was a look in the rear view. Let's now look ahead. We do have earnings from names like Amazon, Microsoft, Alphabet, all members of the Magnificent Seven as the phrase everyone uses these days. Talk to me about your thinking as we head into some of those big names that will undoubtedly earn themselves a lot of headlines in the hours and days ahead, Chris.
CHRIS VERSACE: Yeah, The Big Seven, The Magnificent Seven as you refer to them have been really driving the NASDAQ demonstrably higher over the last several months. Same thing with the S&P 500 just given their exposure index.
And there is some concern about their valuations being stretched but there's also some signs that perhaps some of the underlying businesses could start to reignite. So we'll be looking for that. And think what's going to have to happen, J.D.
For these stocks to move demonstrably higher, they're not only going to have to deliver what we call a priced-to-perfection earnings report-- meaning, that they have to deliver revenue better than expected, earnings better than expected, but they have to guide that way as well. And if we don't see that, we could see some of those shares pull back for members that have been on the sidelines, for us with our three ratings, perhaps, on Microsoft and even Apple. As these companies report, this could give us some reasons to reconsider either adding to the position or perhaps revisiting those three ratings.
J.D DURKIN: I mean, outside of just those three names. If you include other members of the MAG Seven-- Mag seven-- MAG-- whatever you want to call them. Big Seven here, including names like Nvidia. Do we talk about them too much, Chris? Or is all of the hype, all of the conversation, all of the chatter about them well deserved given how they've performed relative to the broader indexes?
CHRIS VERSACE: Well, you kind of have to talk about them, right? Because when you look at the NASDAQ 100 that's getting rejiggered effective today. Those seven names account for almost half of the NASDAQ 100. And their weight inside the S&P 500 is-- I hate to use this word, but huge as well.
So we almost have to talk about them but it overshadows other areas that are actually performing rather well. So if you look inside the AAP portfolio year-to-date. United Rentals, extremely strong. Vulcan Materials as well. Take a look at Chipotle, a demonstrative performer.
So I do think that from time-to-time the market tends to fixate on one particular slice of the market. But as we manage the portfolio. We want to be open to opportunities across the board for members and we'll continue to do that.
J.D DURKIN: All right, let's talk about a few other names we also have on the table, Chris. We got Mastercard Chipotle United Rentals as well. Give me your sense about what you're watching for some of those names.
CHRIS VERSACE: So with Mastercard, we had American Express report last week. And their membership continued to spend very strongly. So I think that sets a good precedent for what we're going to see from Mastercard. But we'll confirm that when Visa reports a day or two earlier as well.
With Chipotle, the two things we want to hear are really margins are continuing to improve because of all the pricing action we took last year. And we're starting to see some price deflation among our key inputs, whether it's avocados, chicken or some other areas. So those two.
But with United Rentals. Look, we know that non-residential construction has been strong. Thank you infrastructure spending. We think that they're going to have a tremendous print. We're probably going to have to raise our price target. But we'll look for confirmation from a few other companies that are reporting this week as well.
J.D DURKIN: Any other earnings outside of the portfolio of particular importance to you you've got your eyes on this week, Chris.
CHRIS VERSACE: Well, I mean, there are 165 S&P 500 constituents reporting this week. And I believe in aggregate, there's something like 900 companies reporting. So, yeah, there are going to be a few.
Let's just take a quick look. I mentioned General Motors already, that'll cue us up for Ford. We've got Lam Research and what they're going to say about their backlog for semiconductor capital equipment. But we'll also be looking for comments on the flow of dollars related to the Chips Act.
We've got Martin Marietta, Ticker Symbol MLM. It's an aggregate company. So we want to see their business benefit, as I just mentioned from infrastructure spending. That'll be a point of confirmation. Not only for United Rentals but really for Vulcan Materials as well.
And then. Later in the week we get industrial, which does both ag-equipment and construction equipment. That'll be a great setup for what Deere is going to say later in the coming weeks when it reports its quarterly results.
J.D DURKIN: All right, the great Chris Versace. Thank you as always. Good luck this week my friend. I know it's going to be a busy one.
CHRIS VERSACE: It's going to be a barn burner, J.D. But we'll not get through it, we will do more than that.
J.D DURKIN: Yes, we will. With lots of caffeine to boot. Folks, that's going to do it. Chris, we'll be back tomorrow for a look at the game plan ahead of this week's Fed decision. Of course, we get that announcement on Wednesday afternoon. Thanks for watching and we'll see you again soon.